09-07-2022, 02:38 PM
Advantages of Stock Dividends over Stock Splits?
<!-- SC_OFF --><div class="md"><p>As far as I have understood, the fundamental difference between Stock Dividends and Stock Splits comes down to:</p> <p>1) Par value share remains the same for Dividends due to redistribution of profits from Retained Earnings into Common stock</p> <p>2) Additional shares are taken from Authorised Reserve Shares and given to shareholders thus reducing Reserve Shares as opposed to just splitting already issued shares. </p> <p>But at the end of the day what actually changes?? The market cap stays the same for both scenarios. Even though stock dividends are presented as a "return of profits" to shareholders via stocks, nothing actually changed. </p> <p>The only thing I can think of is that after the stock price is accordingly adjusted, in the case of Stock Dividends the stock price is expected to continue increasing, whereas in Stock Splits it will stay at it's new lower value (until further increases in profits in the future), which in essence means that the market cap ACTUALLY will INCREASE in Stock Dividends. Indirectly at least. </p> <p>So TLDR:</p> <p>SCENARIO 1) STOCK DIVIDENDS</p> <p>Shares= 100 Market Share Price = 1$ Stock Dividends=100%</p> <p>New Shares=200 New Market Share Price=0.5$ (Par Value same as before) </p> <p>But... New Market Share Price continues to increase as the increased profits are an attractive to signal to potential investors </p> <p>SCENARIO 2) STOCK SPLIT</p> <p>Shares= 100 Market Share Price = 1$ Stock Split = 2:1</p> <p>New Shares:200 Market Share Price = 0.5$(Par Value Halves) </p> <p>But.... Market Share Price will stay around 0.5$ until further profits.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/ayazasker"> /u/ayazasker </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/x7j582/advantages_of_stock_dividends_over_stock_splits/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/x7j582/advantages_of_stock_dividends_over_stock_splits/">[comments]</a></span>
<!-- SC_OFF --><div class="md"><p>As far as I have understood, the fundamental difference between Stock Dividends and Stock Splits comes down to:</p> <p>1) Par value share remains the same for Dividends due to redistribution of profits from Retained Earnings into Common stock</p> <p>2) Additional shares are taken from Authorised Reserve Shares and given to shareholders thus reducing Reserve Shares as opposed to just splitting already issued shares. </p> <p>But at the end of the day what actually changes?? The market cap stays the same for both scenarios. Even though stock dividends are presented as a "return of profits" to shareholders via stocks, nothing actually changed. </p> <p>The only thing I can think of is that after the stock price is accordingly adjusted, in the case of Stock Dividends the stock price is expected to continue increasing, whereas in Stock Splits it will stay at it's new lower value (until further increases in profits in the future), which in essence means that the market cap ACTUALLY will INCREASE in Stock Dividends. Indirectly at least. </p> <p>So TLDR:</p> <p>SCENARIO 1) STOCK DIVIDENDS</p> <p>Shares= 100 Market Share Price = 1$ Stock Dividends=100%</p> <p>New Shares=200 New Market Share Price=0.5$ (Par Value same as before) </p> <p>But... New Market Share Price continues to increase as the increased profits are an attractive to signal to potential investors </p> <p>SCENARIO 2) STOCK SPLIT</p> <p>Shares= 100 Market Share Price = 1$ Stock Split = 2:1</p> <p>New Shares:200 Market Share Price = 0.5$(Par Value Halves) </p> <p>But.... Market Share Price will stay around 0.5$ until further profits.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/ayazasker"> /u/ayazasker </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/x7j582/advantages_of_stock_dividends_over_stock_splits/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/x7j582/advantages_of_stock_dividends_over_stock_splits/">[comments]</a></span>